February 29, 2008

The Week in Cleantech (Feb. 24 to Mar. 1) - Solar: From Darling To Dog?

On Sunday, TraderMark at Fund My Mutual Fund opined that the solar sector was headed for a shakeout. Well, he didn't quite opine that...he reported the major points from Greentech Media's Solar Market Outlook event. The main conclusion is that it's not only 2008 that's going to be a tough year for solar, but rather the next 3 to 4 years as the industry matures and consolidates. TraderMark argues that the solar sector will follow a boom-bust-echo path; we're currently just exiting boom times (read: incredibly rich valuations times) and the whole think is about to go bust, but if you can pick up future winners on the cheap during this period echo will do great for you.

On Wednesday, Jim Fraser at The Energy Blog reported that the end might be in sight for silicon shortage in the solar industry. The timing will be unfortunate for many PV hopefuls. Just as solar PV manufacturers get a break on the cost side, the revenue end will likely give as too much supply forces prices down. Where should you look for good long-term investments? Low manufacturing costs and healthy balance sheets to come out ahead in the consolidation game.

On Thursday, The Economist discussed the transition process from geek to green. Do high-profile techies have what it takes to be good at running successful cleantech and alt energy firms? On the one hand, there is a decidedly 'tech' feel to a whole side of the business. On the other hand, the forces driving much of the momentum in cleantech and alt energy are vastly different from those driving the technology industry. Mind you, the internet sector did broadly follow a boom-bust-echo development path (see first item), so maybe experience navigating this sort of environment is what will really matter as the sector matures.

On Thursday, David M. Herszenhorn at the the NYT discussed the passing by the House of a bill to extend tax credits and other incentives to the alternative energy sector. Concerns about those credits are partly responsible for the current volatility experienced by alt energy stocks, most notably solar. It seems ridiculous to me to argue that Big Oil needs tax breaks to operate profitably. Alternative energy, on the other hand, still needs a push in the near term, although it holds tremendous promises in the long run from nearly any point of view. Given demands by industry actors to end political uncertainty soon so as to not stunt growth, separating the two issues would probably be a more pragmatic road to take at this point. After all, old pork-channeling habits die hard, so in its current form don't expect that bill to go down without a fight from the White House.

On Friday, Gerard Wynn at Reuters informed us that banks are in talks to shape U.S. climate policy. This news comes just a few weeks after a coalition of major US banks claimed they were going to place more weight on climate risks in lending. Are these two pieces of news coincidental? Not at all. As the entities that will be running the trading show in carbon markets, big banks have every incentive to ensure that the system is structured in a way that will maximize value for them and their shareholders. Of course there are those who are cynical about this and claim that carbon markets will be nothing but a big money grab by big finance. I'm in the camp of those who believe that you have to be real about it, and that if everyone loses it will be years before any real climate action is taken. After all, Gordon Gekko's famous "Greed is good" speech became famous for a reason.

February 28, 2008

Pick the Next Stocks I Research

I plan to write about a couple of the companies that readers
asked about two weeks ago. I'd like to research the ones of interest
to as many readers as possible. Let me know!

polls - Take Our Poll
UPDATE: I'll publish articles on CPTC.OB and PSUD.PK soon.
If the stock you want to know about is not in the poll, please leave a comment here, and I'll do another round at a future date. --Tom

February 25, 2008

Like Quanta
Services, (#8 in this series), National
Grid PLC (NYSE:NGG) allows
investors to participate in the massive build out of electricity transmission
and distribution infrastructure necessitated by years of neglect and the growing
need to decarbonize our electric infrastructure. See the article linked
above for more detail on these two forces driving the sector.

Having its origins
in British electricity deregulation in the 1990s, Nation Grid is a regulated
utility in Britain and the United States, and operates high pressure gas
pipelines and high voltage transmission in Britain, and electricity transmission
and natural gas distribution in the Northeastern US. The US operations
were acquired with the purchase of Keyspan
and the gas distribution network of Southern Company in 2007, as well as some
smaller previous aquisitions. They also own some electricity generation
assets (mainly acquired as part of Keyspan)

Comparables

The only pure play publicly owned electricity transmission and distribution
utility I'm aware of is ITC Holdings
(NYSE:ITC), a company I recommended
in my article on transmission
stocks last April. Since then, the stock has risen almost 30%,
and I now think that it looks expensive, compared to NGG and Quanta
Services, which is why it did not make it into this series. In
contrast, NGG trades at a forward P/E of around 13.3, below the utility industry
average, with a dividend of 3.2%.

Environment

As a European company based in Britain, management understands dealing with
regulators and customers who are far more concerned with Climate Change and
renewable energy than those of it's recently acquired US operations. I
expect that the British experience will be a valuable asset to the US based
operation as we see carbon regulations in the US (something I expect early in
the next Presidential administration, considering that Congress and all the
leading Presidential candidates support it), and as the United States begins to
catch up with the Europeans in our level of environmental awareness and demand
for lean energy sources.

As a regulated utility (with 95% of revenues from regulated businesses,)
large price appreciation is unlikely, but given National Grid's position and
expertise in transmission and distribution, a P/E below industry averages makes
the stock seem a solid, safe bet, especially in uncertain economic times.

DISCLOSURE: Tom Konrad and/or his clients have long positions
in NGG, ITC, PWR.

DISCLAIMER: The information and trades provided here are for
informational purposes only and are not a solicitation to buy or sell any of
these securities. Investing involves substantial risk and you should evaluate
your own risk levels before you make any investment. Past results are not an
indication of future performance. Please take the time to read the full
disclaimer here.

February 24, 2008

In large part, the transition to clean energy will involve using our
resources much more efficiently than we do now. One large potential
feedstock for biofuels (and arguably
the only one which is truly sustainable) is our trash. As the world
economy grows, and the available stock of natural resources diminishes, society
will have no choice but to use what we have more efficiently and throw less of
it away.

In addition to the now familiar recycling of Aluminum, glass, cardboard,
paper, and plastic, yard and construction waste will find its way to cellulosic
ethanol plants, and used cooking oil will be transformed into biodiesel.
Formerly problematic hazardous waste such as electronics will be reused, and
what can't be reused will be mined for increasingly valuable (and toxic)
elements they contain.

One
company likely to be at the center of many of these trends is Waste
Management, Inc. (NYSE: WMI.)
As the United States' largest trash hauler and recycler, they are in the
enviable position of being paid to collect potentially valuable material. Growth in recycling
need not be a drain on earnings, since in many cases, recycling
programs simply allow them to enlist customers to help them segregate recyclables
from other waste, or to offer higher value-added services such as single-stream
recycling. It's clear that management understands these trends, having
adopted "Think
Green" as the company slogan, and has put new emphasis on recycling and
Waste-to-Energy divisions. Even if the initial motivation was the urge
to greenwash, the opportunity for profit has not been lost.

As the largest operator of landfills in the US, Waste Management is also in
the enviable position of managing large, renewable sources of natural gas.
Landfill
gas, unlike many other forms of renewable energy can provide baseload
electricity, or, with the addition of gas storage, dispatchable power. In
addition to these advantages, the cost to produce electricity from landfill gas
is price competitive with conventional electricity generation. Waste
Management has been aggressively collecting landfill gas at more landfills
around the country, and has even developed technology to accelerate decomposition
and methane production in bioreactor
landfills.

Waste Management has seen decreasing trash volumes over the last two years,
in large part due to the slowing economy, especially the construction
sector. Despite this, they have been able to use their pricing power and
cost slimming to increase their profits per share over that same period.
The prices of recycled commodities, like all commodities have also been robust
over the same period. If waste volumes cease to decline, and the prices of
recycled commodities continue to rise (which I expect, although they are
predicting flat pricing for recycled commodities), they should see excellent
profit improvement over the next few years.

Finally, WMI management feels that they have already seen most of the decline
that they expect from a slowing economy, and they have been able to weather that
decline well by aggressively cutting costs. Any rise in volumes due to an
uptick in economic activity should be multiplied in increased
profits. For the longer term, existing landfills may be the source
of much more revenue than just landfill gas. The first step in using
resources more efficiently will be recycling rather than sending them to
landfills. Further in the future, we may see actual mining of old
landfills, recovering the trash of yesteryear for the products of
tomorrow.

DISCLAIMER: The information and trades provided here are for
informational purposes only and are not a solicitation to buy or sell any of
these securities. Investing involves substantial risk and you should evaluate
your own risk levels before you make any investment. Past results are not an
indication of future performance. Please take the time to read the full
disclaimer here.

February 23, 2008

On Monday, Richard T. Stuebi at the Cleantech Blog gave us the heads up on a McKinsey Global Institute study on energy 'productivity' (read efficiency). MGI makes an good case for policy-makers to pay more attention to energy efficiency, and the authors outline what investment commitments would have to made in different sectors for their ideal scenario to be realized. One interesting insight - the residential sector would be near the top at 25% of investment flows. Are retail energy efficiency solutions one piece of regulation away from taking off?

On Tuesday, Nick Hodge at Seeking Alpha told us about how to invest in BIPV companies. If one believes that the MGI's masterplan for energy productivity (discussed above) has a good chance of being implemented, than the BIPV sector would be a huge winner. Another funny coincidence: one the global leaders in this space just got smashed for margin, inventory and guidance hiccups. Can you guess who that is? This could be a good time to look at picking some up on the (relative) cheap.

On Wednesday, Energy Tech Stocks argued that the chance of a disastrous drought in the U.S. southwest presented a huge opportunity for utility-scale solar firms like Ted Turner’s. It's no mystery that the once mighty rivers of the US west aren't so mighty anymore - so could the lost hydroelectric potential be recouped through massive solar developments? That's certainly a possibility and I'd go further and argue that, given yet unresolved variability and storage issues with solar PV, CSP is what you should really be interested in if you think the west is going solar for its baseload needs.

On Wednesday, Climateer at Climateer Investing told us about an interesting article that wonders whether massive railroad infrastructure will fundamentally change US transportation logistics. Railroads could be one of the great winners of tightening environmental standards, rising fuel costs and chronic traffic problems in most of North America's major urban areas. Of course, this isn't 1873 anymore and one doesn't build a railway where ever one feels like it. But because hardly any money has gone in the railroad network since 1873, upgrades alone could provide some interesting opportunities. Look for the suppliers.

On Thursday, Keith Johnson at the WSJ's Environmental Capital told us about a new carbon market. I've been keeping an eye on the little Massachusetts-based, Toronto-listed company discussed in this article for a couple of years now because of my interest in environmental markets. While I think that what these guys are doing is very innovative, I am a little concerned about crowding out. America's environmental markets (i.e. NOx/SOx, RECs, etc.) are neither especially large nor especially liquid. While the advent of carbon trading and the growth of the RECs markets could change that dramatically, it is unclear whether everyone will be able to play this game profitably. At the end of the day, in the exchange business, scale and reputation drive business which drives liquidity which drives efficient prices which drive more business, although the World Energy folks don't view exchange-based trading as an optimal solution (hmmmm...I wonder why that might be). At the other end of the spectrum, the more established brokers will drive a lot of the OTC business. While the entry of NYMEX into this sector boosted confidence that carbon trading is indeed be on the horizon for North America, it also made that whole space a lot less attractive for existing and potential competitors.

February 21, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: These Almost Made It

In the future, I plan to avoid doing lists of ten stocks. I've found the
writing to be somewhat repetitious, and I suspect some readers feel the same
way. Look for more threes and fives.

That said, there are more than enough solid companies with strong clean
energy arms. These companies are my favorite investments right now, both
because I think that now is a time to play it very safe in the stock market (I'm
also increasing my cash reserve), and because these companies allow me to use Cash
Covered Puts.

Since I do have several companies I nearly put in this list (I've been
deciding which ones to write about as I go along... the list order doesn't mean
much of anything.) I thought I'd share those with readers, but without extensive
discussion of the pros and cons. Also in no particular order:

REMINDER: I'm still collecting
suggestions for companies to write about in a (shorter) series of articles
which will appear in March. I plan to select the companies from all
suggestions submitted with a poll next week.

DISCLOSURE: Tom Konrad and/or his clients have long positions
in BGC, GBX, and OC.

DISCLAIMER: The information and trades provided here are for
informational purposes only and are not a solicitation to buy or sell any of
these securities. Investing involves substantial risk and you should evaluate
your own risk levels before you make any investment. Past results are not an
indication of future performance. Please take the time to read the full
disclaimer here.

February 19, 2008

Like my
#6 pick Sharp, Applied Materials provides
investors a way to profit from the spectacular growth of the solar industry
without the incredible volatility of the solar sector. Unlike Sharp,
however, AMAT is farter up the value chain, supplying technology and equipment
to Solar manufacturers.

Their
strategy is to "become
the leading equipment supplier to the solar industry." I find their
broad-based strategy of acquisitions in the solar supply sector attractive,
because I feel that AMAT's size, financial strength, and reputation in the chip
industry should give customers the confidence they need to spend billions of
dollars on equipment from AMAT which they might not have if they were buying from
the acquired firm. In other words, the very fact of acquisition should add
value to the technology of small acquired firms. When I asked a lawyer who
used to work at AMAT what her impression was, one of her comments was "From a
legal negotiating perspective, I found it almost boring (i.e. without challenge)
because suppliers and partners would typically cave to our terms given our
leadership position in the market." That probably has not hurt,
either.

Currently, AMAT is weathering a decline in demand for their core silicon
manufacturing products. This is good news for investors interested in their
solar business, because it means that we do not need to pay as much for the
non-green chip manufacturing.

Too Many TVs

However, considerable revenues and profits come from LCD manufacture, an
industry also of little interest to clean energy investors (except in the sense
that LCD TVs are much more energy efficient that Plasma displays.) After Philips
and Sharp,
investors following this series will note that this is now the third company
with considerable exposure to the LCD Television market. LCDs have seen
spectacular growth in recent years, but much of that growth has doubtless been
driven by a booming world economy. As a luxury item, sales of new giant
flat panel TVs will be quick to suffer from any global slowdown, and this
concentration of companies involved in LCD manufacture lessens the protection
from diversification investors can get buy buying companies like those in this
series, with large clean energy operations as part of a diversified
portfolio of businesses.

Investors might choose to ameliorate this risk by waiting for a slump in the
market for LCD TVs before buying all three of these companies, or at least
buying them slowly over time.

Other Clean Energy Technologies

AMAT also provides some exposure to other interesting clean energy
technologies. Their Glass
Coating Products are used to deposit the special layers used to reduce heat
gain or loss through low-e
windows. They are also working to apply their manufacturing prowess to
the emerging Organic
LED technology, an exciting but emerging sector of energy efficient
lighting. As AMAT says on their website, potential uses of OLEDs are not
completely defined. In that sort of situation, I prefer to get
exposure to the technology through a company I can feel confident will be able
to apply its expertise no matter what the final uses turn out to be.

DISCLOSURE: Tom Konrad and/or his clients have long positions
in AMAT, PHG, and SHCAY.

DISCLAIMER: The information and trades provided here are for
informational purposes only and are not a solicitation to buy or sell any of
these securities. Investing involves substantial risk and you should evaluate
your own risk levels before you make any investment. Past results are not an
indication of future performance. Please take the time to read the full
disclaimer here.

February 17, 2008

Peak oil is likely to have everyone re-examining their transportation options
over the next few years. Rail will likely be one of those options given
special attention because rail transportation is inherently much more fuel
efficient than road based transport.

I first mentioned Trinity Industries (NYSE:TRN)
in November as a rail transit related stock.
I didn't give it an in-depth look because rail transit is only a tiny part of
its business, but investors interested in the broader rail sector will be very interested.

Not only is Trinity focused on the most energy efficient form of land
transport, its fundamentals should appeal to the value investor. A forward
and trailing P/E of around 8.5, and a price to book ratio of less than 1.5 are
so low they make you wonder if something is seriously wrong with the
company. The company has been investing aggressively over the last few
years (something I consider prudent given the prospects of the rail
industry.) The aggressive investment program has resulted in consistently
negative free cash flow, and has been primarily financed by new debt.
However, their debt to equity
ratio is still a comfortable 0.86.

Trinity is a group of related growth businesses, mostly focused on efficient
modes of transport, priced like a value company. To me, the company seems
too good to be true, so I went looking for dirt in their SEC Filings.
Their corporate
governance seems comprehensive and robust.

The firm shows a talent for financial engineering, but only to an extent that
seems appropriate to a rapidly growing company in several capital-intensive
industries. This talent seems to have allowed them to secure a large
quantity of low cost debt. Company insiders have been net buyers of the
stock since it dropped below $40 last July, a factor which enhances my
confidence of a lack of skeletons in the closet.

Trinity will
release 4th quarter earnings after the close on February 20. I
expect a positive earnings surprise, although given the current mood of the
market, that's not a guarantee of a jump in the stock price. The 13.7%
positive earnings surprise in November lead to a price drop, since the surprise
wasn't as big as in previous quarters. I don't see any reason to chase
this one. $29 seems like a good price to me, but the economic slowdown and
a slowdown in Trinity's earning growth may provide opportunities to pick up this
solid company at even lower prices.

DISCLAIMER: The information and trades provided here are for
informational purposes only and are not a solicitation to buy or sell any of
these securities. Investing involves substantial risk and you should evaluate
your own risk levels before you make any investment. Past results are not an
indication of future performance. Please take the time to read the full
disclaimer here.

February 14, 2008

Readers' Choice

I often get questions
from readers asking me what I think about this alternative energy company or
that one. Much of the time, I simply have to say "I haven't
researched it." What can I say, I'm not Jim
Cramer. Even when I do have an opinion, and the question is left in
the comments (my rule is, if you want free advice, you have to be willing to
share,) it's probably not researched in the depth that the person was hoping for.

For all of you wondering about my take on a specific stock, please let me
know by leaving a comment on this article. I'll write articles with the
same depth of research I'm doing in the current 10
Solid Clean Energy Companies to Buy on the Cheap series on at least some of
them. The Ten Solid Companies series will resume this Sunday with a
company focused on efficient transportation.

When that series is over, we'll have a look at some of our Readers' requests.

DISCLAIMER: The information and trades provided here and in
the comments are for informational purposes only and are not a solicitation to
buy or sell any of these securities. Investing involves substantial risk and you
should evaluate your own risk levels before you make any investment. Past
results are not an indication of future performance. Please take the time to
read the full disclaimer here.

February 12, 2008

I don't write frequently about solar stocks, especially photovoltaic (PV) manufacturers.
While the industry is almost certain to be a spectacular growth story, it's also
a story that everyone already seems to know about. Trader Mark put it
well: "these
stocks are too driven by retail hands." The PV story clicks with
people, and when that happens, they often buy stocks with little regard to what
they are worth. PV stocks are so psychological, we'd all do well to lie down on
a couch before buying.

As the IRS is unlikely to allow psychotherapy as an
"investing expense," I have looked to other, less popular sectors of
renewable energy, and to energy
efficiency in this
series. I sidestep the issue by investing in conglomerates
and related industries such as electricity transmission and
distribution,
or agriculture which are less exciting, but will benefit from the same
trends. That is why I'm halfway through this series, and only now talking
about the most popular form of renewable energy, solar photovoltaics.

Since Sharp (SHCAY
(ADR), TSE:6753)
is a conglomerate, its PV manufacturing is often overlooked by solar investors, despite the
fact that it's the world's largest manufacturer of solar cells (according to
Sharp, independent industry statistics are hard to come by.) Admittedly, PV
accounts for considerably less than 10% of their sales: PV falls under
"other Electronic components" in their sales
breakdown, and that category was only 9.6% of total sales in 2007. In
the last
nine months of 2007, solar sales declined, most likely due to limited
supplies of crystalline silicon. They have taken steps to assure future crystalline
silicon supplies, and are aggressively expanding their thin film production.

While some
a-Si manufacturers have given the technology a reputation for low quality,
many manufacturers produce high quality panels. Amorphous Silicon, like
other thin film technologies, tends to have a lower conversion efficiency than
traditional crystalline silicon modules, but I was surprised to hear in Sharp's New
Year Address that because their thin film more thermally robust in hot
climates, their thin film panels actually operate at higher efficiency than
their crystalline silicon panels in places like Spain. For this reason,
they are targeting large scale PV installations in Southern Europe with their
thin film modules, while their crystalline PV modules are targeted at smaller
installations in cooler areas. I had previously thought that thin film was
primarily useful for the same things as conventional PV, and also for Building
Integrated Photovoltaics (BIPV.) I had not expected thin film to have
higher efficiency in any context.

Energy Efficiency

PV is less than 10% of Sharp's business, but many of their other products
should also be of interest to Alternative Energy investors. Japan is one
of the most environmentally and socially aware countries, and as someone more accustomed
to listening to investor presentations from North American companies, Sharp's
presentations are a culture shock. Profit numbers play second fiddle to
environmental and social responsibility, the reverse of what I'm normally used
to.

Perhaps even more than Europeans, the Japanese have been thinking about energy for a long
time (no doubt in large part because they have to import most of it and
therefore pay more for it than North Americans.) Since most North
Americans are only now waking up to the need to save energy, a Japanese company
which has long known how to please energy-conscious consumers should be able to
use those skills as more consumers become aware of the life-cycle costs of their
electronic purchases.

Since a large portion of Sharp's revenues come from consumer products,
lower consumer spending and a possible
recession in the United States could easily lead to a sharp drop in the
stock price. If that happens, clean energy investors should take that
opportunity to acquire one of the world's top solar and energy efficiency
companies on the cheap.

DISCLOSURE: Tom Konrad and/or his clients have long positions
in SHCAY.

DISCLAIMER: The information and trades provided here are for
informational purposes only and are not a solicitation to buy or sell any of
these securities. Investing involves substantial risk and you should evaluate
your own risk levels before you make any investment. Past results are not an
indication of future performance. Please take the time to read the full
disclaimer here.

February 10, 2008

The first and last word in any discussion of biofuels should always be
"Feedstock." Feedstock is the "Bio" out of which
biofuels will eventually be made, whether it be corn, sugar, jatropha, algae,
palm oil, switchgrass, forestry waste, or municipal solid waste.

Before the era of peak oil, we lived in a world of plenty, which meant that
we could squander energy, not only by driving Hummers, but by feeding energy
intensive products such as corn crops to livestock, and by dumping "free" sources
of energy such as garden waste and used cooking oil into landfills.

The era of cheap energy is over. The signs are all around, and even
peak oil deniers point to expensive-to-extract reserves such as deep water
drilling, Canadian tar sands, and even Colorado's Oil Shale. These
sources of oil are not only more expensive to extract, they are are also more
carbon-intensive, meaning that regulation of greenhouse gas emissions will raise
their price further.

The
only sure winners from limited and increasingly valuable biomass will be the people
who produce it: farmers, foresters, and (perhaps) trash haulers and
recyclers. What do farmers do when they have spare cash? They buy
farm equipment, quite often from Deere & Co.
(NYSE:DE) Few stock have
ridden the biofuel boom as well as Deere, with the stock rising 400% in the
last four years in a nearly uninterrupted uptrend, without the thrills and
spills that have turned so many investors off of corn ethanol.

The beauty of Deere as a biofuel investment is that there is no need to know
what the biomass will be used for, or what form it will come in. In nearly
every scenario I can envision, Deere is likely to be a major supplier to the
industry which grows it. From algae to Jatropha, if Deere does not yet
sell equipment to plant, tend, and harvest it, it seems a good bet that they
will design one. This technology agnosticism, combined with their
wide dealer network in agricultural areas, makes the company seem to me the safest way to bet on biofuels as a
trend.

Even with a 9-year
run up, the stock currently trades at a trailing P/E of 22, and despite its
construction arm, has not yet been hit hard by the turbulence in the housing
market. Since I expect the housing situation to only get worse over the
coming months, a sharp decline in construction income or a continued broad
market decline may be just what
prospective investors need to pick up this solid biofuel play on the cheap.

DISCLAIMER: The information and trades provided here are for
informational purposes only and are not a solicitation to buy or sell any of
these securities. Investing involves substantial risk and you should evaluate
your own risk levels before you make any investment. Past results are not an
indication of future performance. Please take the time to read the full
disclaimer here.

February 09, 2008

The Week in Cleantech (Feb. 3 to Feb. 9) - Happy Year Of The Rat!

On Monday, Lisa Lee at Reuters informed us that banks were to weigh CO2 emissions in power lending. This is, without a doubt, the story of the week. However, anybody who has been following this space knew that the writing was on the wall. Cai Steger at The Invisible Green Hand put together a comprehensive list of coal power projects that have either been canceled or put on hold due to environmental concerns in the recent past. Somewhat paradoxically, the same week, a major US coal export terminal announced that it was boosting capacity. Don't be fooled, although coal may have suffered a small setback in America, it continues to do very well globally as a fuel source for power gen.

On Tuesday, Julian Murdoch at Hard Assets Investor gave us an overview of the latest Bush budget from an alternative energy perspective. This is an interesting read and I don't have too much to say about it, other than that the Bush Administration definitely did not throw alt energy any bones to make up for ground lost elsewhere.

On Wednesday, Ryan Stanton at Mlive.com told us that methane from landfills was seen as a viable, renewable source of energy. Landfill methane, old story right? Well I'm not so sure. While the technology and the concept have been with us for the better part of the past 20 years, the economics of these projects could be significantly altered in the years ahead for two main reasons: (a) the proliferation of incentive programs for clean power generation across North America, and (b) my favorite, carbon credits. It will be interesting to see what happens with firms heavily involved with this, which at the moment would be your large-cap waste management companies. Could they be in a position to build nice portfolios of carbon offsets for eventual re-sale in a North American carbon market...a la Blue Source?

On Wednesday, Massie Santos Ballon at Cleantech.com met with someone who is challenging silicon's grip on solar. Despite rough times in equity markets and uncertainty around federal incentives and the price of oil, solar remains a pretty exciting space because such innovations promise to bring down costs significantly in the next few years. However, although it is fair to say that an economic slowdown will not ravage the industry, hefty valuations across the sector as recently as last month suggest that a little more pain may be on the way if equity markets continue to soften. Watch for good bargains!

On Friday, Michael Kanellos at CNet News.com gave us some scary stats about greening the grid. What are two of the biggest issues facing the grid according to these two utilities executives? Grid expansion/upgrade and storage - two of our favorite sectors. The numbers given early on in the article provide you an idea of the scale of expenditures required over the next few decades. Check out Tom's article for a selection of transmission stocks.

Finally, the AltEnergyStocks.com team would like to wish all of our Chinese readers Happy New Year. This year is the year of the Rat. We put year of the Rabbit earlier - that was a mistake. Apologies.

February 07, 2008

It may be a stretch to call a company with a P/E ratio in the high 30s
"cheap," but in the case of Quanta
Services (NYSE:PWR), it's a
bargain.

I
won't repeat myself about why electric transmission and distribution (T&D)
investments are a good bet. Put simply, the grid has been long
neglected, and improved long distance transmission is essential to bringing large
scale renewables such as solar and wind
onto the grid.

How does Quanta fit in? They build transmission line for
utilities. When I ask industry insiders what company is best placed to
actually string the wires or lay the cable, the answer is Quanta Services (the
answer used to be InfraSource,
until that company was acquired
by Quanta.)

According to a recent article in the January/February
issue of EnergyBiz (this particular article, on p.56 of the print version,
does not seem to be online), Northeast
Utilities (NU) signed a 6 year contract with Quanta in order to assure
themselves access to T&D contracting services which they expect to be in
short supply. According to Jim Muntz, a Senior Vice President at NU,
"There are only a few contractors who have the capability to do contracts
on this scale, so we determined that before it's taken away from us, we would
have to lock up their services for a number of years."

Another reason to expect growth in the industry comes from the same
article. According to Tim Hope, a vice president of operations at ABB (another
excellent transmission investment), "While other parts of the utility's
operations... looked to outsourcing solutions, T&D seems to be one of the
last departments to embrace the concept." This means that the market
for outsourced T&D can not only grow as utilities invest more, but also as
they increasingly turn to outsourcing, either due to regulatory pressure or
because of insufficient internal resources.

While I might have preferred the pure-play electric T&D opportunity of
Infrasource before the merger, Quanta's strategy of becoming a one-stop shop for
infrastructure in natural gas, telecommunication, and broadband cable as well as
power should serve it well if
these industries continue to converge. The strategy may also allow the power division
to draw on additional workers with similar skills from telecoms and cable, if or
when the skills shortage outlined above takes hold.

Doesn't that make a high-thirties P/E start to sound cheap? It does to Cramer
and an analyst
at Morgan Stanley. I'm hoping the current market decline will make even
cheaper.

DISCLOSURE: Tom Konrad and/or his clients have long positions
in PWR, ABB.

DISCLAIMER: The information and trades provided here are for
informational purposes only and are not a solicitation to buy or sell any of
these securities. Investing involves substantial risk and you should evaluate
your own risk levels before you make any investment. Past results are not an
indication of future performance. Please take the time to read the full
disclaimer here.

While Siemens and GE are broad industrial conglomerates, smaller Philips is comparatively
focused on electronics, with lighting being one of just four divisions.
Last June, I told
readers about my hunch that Philips was "the most serious [of the] lighting
manufacturers about pursuing LEDs." That hunch was quickly confirmed
when Philips' announced the
acquisition of LED company Color Kinetics a couple weeks later. That acquisition
was followed in November by Philips'
announced acquisition of Genlyte, with the apparent intention of using this
lighting fixture manufacturer to increase their US market penetration.

These two acquisitions allowed the much smaller Philips (market cap $42B) to
surpass the more diversified GE ($363B market cap) as the leading lighting
manufacturer in both North America and the world as a whole. For investors
who worry that a possible US recession might turn consumers' and companies'
attention away from clean energy, energy efficient lighting is the perfect
choice in a more budget conscious green era. Commercial lighting retrofits
often have payback periods of less than a year, and so are likely to appeal to
companies seeking to reduce costs.

Philips' other businesses include medical devices and consumer
products. Not much about them seems particularly green, although they
recently announced
an LED-backlit "Eco-TV," which may appeal to the green aspiring couch
potato. It received faint
praise from the green technorati, since a big new TV (even a relatively
energy efficient one) is likely to be a lot more wasteful than the smaller TV
you already have. On the other hand, the Eco-TV may be the start of a
strategy within Philips to leverage their lighting expertise to their consumer
electronics business.

In any case, the lighting business is worth having in your portfolio,
especially if a market collapse provides an opportunity to buy it on the cheap.

DISCLOSURE: Tom Konrad and/or his clients have long positions
in PHG, GE, SI.

DISCLAIMER: The information and trades provided here are for
informational purposes only and are not a solicitation to buy or sell any of
these securities. Investing involves substantial risk and you should evaluate
your own risk levels before you make any investment. Past results are not an
indication of future performance. Please take the time to read the full
disclaimer here.

February 03, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: #10 United Technologies

Like most conglomerates, United Technologies
Corporation (UTC), (NYSE:UTX)
won't be found in any of the Clean Energy indices, but its growing portfolio of
clean energy businesses makes it fit well into a diversified
portfolio with a clean energy tilt. A conservative capital structure
and solid earnings and cash flow, and a decades long history of constantly
increasing dividends make this a company that I'm comfortable holding for the
long term.

In terms of sustainability, the company has
been recognized by Dow Jones as in the top 10% of the world's most
sustainable companies. Long before it became fashionable for companies to
greenwash by reducing their environmental impacts, UTC pledged in 1996 to reduce
their power and water usage by 25%, and they have met these goals while growing their
business. Their long track record of reducing their energy usage gives
them a significant head start against rivals who have only recently jumped on
the climate change bandwagon.

Of the company's eight major business units, UTC
Power and Carrier are both crucial to
how we generate electricity and how we use it. Carrier has a history of
pushing for more stringent energy efficiency and environmental standards for air
conditioning, a strategy which helps their business strategy since UTC's scale
and research
allow them to remain on the technological forefront.

One other technology likely to be of great interest to clean energy investors
is their molten
salt storage technology, which provides a rare opportunity for a US-based
public investor to participate in what I consider to be one of the most
promising solar technologies: Concentrating Solar Thermal Power (CSP). The
thermal storage provided by molten salt gives CSP the potential to provide power
on a dispatchable basis, allowing it to compete directly with expensive
electricity from natural gas turbines.

Other divisions of UTC, such as the Sikorsky
helicopter division, are major military suppliers, so traditional socially
conscious investors may wish to avoid UTC. On the other hand, the short
supply of helicopters
needed in modern warfare (as well a a large backlog in their Otis elevator
division) have
propelled strong earnings growth, while even relatively efficient air
conditioners could not prevent Carrier from being hurt by the housing
slowdown. Such are the benefits of diversification.

At roughly $74, and a 17.3 P/E, UTX is not currently cheap. I currently
have only some out-of
the money short puts on the company, but it's one that I intend to continue
writing puts on until the stock falls and I'm assigned shares.

DISCLOSURE: Tom Konrad and/or his clients have long positions
in UTX, RZ.

DISCLAIMER: The information and trades provided here are for informational
purposes only and are not a solicitation to buy or sell any of these securities.
Investing involves substantial risk and you should evaluate your own risk levels
before you make any investment. Past results are not an indication of future
performance. Please take the time to read the full disclaimer here.

February 02, 2008

A few weeks ago, I argued that signs were pointing toward an imminent return of diesel powertrain technology in North America. On Monday, however, Mike Millikin at Green Car Congress informed us that US new-car shoppers did not see diesels as a likely mainstream powertrain. Instead, hybrids really seem to have captured the imagination of US car shoppers. The respondents' perception of diesel seems rooted in stereotypes dating back to the 1980s, which I suppose is normal given that that is when US drivers last experienced diesel engines to any significant degree. It will be interesting to see whether the car makers that are banking on diesel making a comeback in North America manage to change that perception.

On Wednesday, Keith Johnson at the WSJ's Environmental Capital discussed rate cuts and renewable energy. Well...not quite. His post focuses mostly on what would happen to solar stocks should OPEC turn on the taps. Should OPEC nations find the capacity to increase their collective output, this would be yet one more item solar bears would have on their side for 2008. But the question is, can OPEC even find that capacity?

On Wednesday, Bioenergy Business told us that a new US renewable fuel standard trading exchange had gone live. Regular readers know that I'm a big fan of all things market-based for regulatory compliance, be it carbon credits, SOx emissions or RECs. This new kid on the environmental exchange bloc promises to be interesting, especially given that, unlike CO2 or RECs in certain states, the Renewable Fuel Standard (RFS) is mandatory.

On Thursday, Climateer at Climateer Investing gave us the heads up on an article that argues that China could soon be the world's top wind turbine manufacturer. There are two interesting angles for investors here. First, current tightness in wind turbine supply should ease by 2009 as new capacity continues to be added, which will lead to price decline and potential top-line impacts for the current turbine majors. Second, after a plethora of Chinese solar IPOs on US exchanges over the past 3 years, could Chinese turbine makers be next? Keep in mind, however, that quality will continue to be a key issue and that the incumbents have a serious advantage here.